Mergers & Acquisitions

Retail comes together by way of M&A

More precisely, in the last few years legacy retailers have bought smaller brands, many of them digital upstarts, in the hopes of strengthening their portfolios. 

“There’s learnings on both sides,” Ariela Esquenazi, founder, chief executive officer and president of Ariela & Associates, an intimates apparel manufacturer, told WWD. 

In the case of her firm, which purchased lingerie company Curvy Couture for an undisclosed amount in November, it’s able to learn more about making bras for the plus-size market, while Curvy is able to scale. 

When Wacoal bought lingerie start-up Lively last summer, Bob Vitale, president and ceo of Wacoal America at the time, also said the deal benefited both parties: Wacoal was able to learn from Lively’s digital prowess, while the digital native was able to scale with Wacoal’s well-established infrastructure. There are other examples, too, like Vera Bradley buying a majority stake in jewelry upstart Pura Vida last summer. Or, when PVH purchased digital lingerie brand True & Co. in 2017. 

“What the digital brands do really, really well is the way they go to market,” said Todd Mick, executive director of U.S. fashion footwear and accessories of market research firm The NPD Group. “They have great storytelling, they have a great founder story; they’re very p.r.- and media-savvy. They’re incredible about building a community, connecting to new consumer groups and embracing their values. 

“But traditional retailers create innovative benefits, the infrastructure around delivering innovation, bringing them to the marketplace,” Mick continued. “Quite frankly, digital native brands don’t have that.” 

But the acquisitions aren’t restricted to Internet brands. In fact, they’re rolling out through the retail world. 

Most recently, luxury fashion house LVMH Moët Hennessy Louis Vuitton added to its already extensive portfolio when it bought Tiffany & Co. for $16.2 billion in November

Capri Holdings Ltd., formerly the Michael Kors company, has been on a buying spree since it purchased Jimmy Choo in 2017, then Versace in December 2018 and most recently signed a definitive agreement to acquire Italian atelier and shoe manufacturer Alberto Gozzi Srl in Pistoia, Tuscany.

Likewise, Tapestry Inc., originally Coach, purchased shoe company Stuart Weitzman in 2015, followed by women’s ready-to-wear and accessories brand Kate Spade two years later. VF Corp. has been buying up companies for years, including Vans, Calvin Klein and Tommy Hilfiger. Now there’s rumors that VF is in the running to acquire luxury sneaker brand Golden Goose. There’s also talk that Kering wants to buy luxury jacket maker Moncler

“Given where valuations are in the branded space, it wouldn’t surprise me if in 2020 we see more M&A activity in the space than we have in the last year or two,” said Ike Boruchow, senior retail analyst at Wells Fargo. 

That leads some to wonder which brands could be next? While Tapestry has said it’s on hold for now, Boruchow said VF will likely be the next to make a move. 

“They’re six years out of their last deal and all those other deals have already worked to become very accretive,” Boruchow said. 

He added that he doesn’t think many acquisitions will occur in the branded space. 

“There’s a lot of smaller companies that I hear about where growth is stagnating, versus where things are becoming more and more exciting,” he said. That includes online platform retailers that sell a variety of brands. Companies like Stitch Fix, The RealReal and Revolve. 

“Where you hear about brands and companies that are starting to do very, very well, where you see more public activity, is on the e-commerce side,” Boruchow said. “That’s really where you’re seeing more potential, real growth.” 

David Swartz, equity analyst at Morningstar Research, however, added a word of caution to potential investors. 

“Making an acquisition can cause years of problems if it’s the wrong one,” Swartz said. 

“Part of the problem is that we’ve been in a 10-year bull market for the stock market,” he added. “That means valuations of public companies and private companies are quite high. It’s tough to find anything to buy at decent valuations. And there’s only so many brands that become available in any one year. Buyers know this. So, sophisticated buyers like VF or LVMH, are not going to overpay. Unless they really see the value.”

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